All items from Money Law Blog -- Bankruptcy and Tax Law in DC, MD and VA | Edward Gonzalez

One of the most frequent questions I get is: "How am I going to pay the attorney's fees and costs for a bankruptcy?"

Yes, we know you're seemingly strapped, but you actually have more resources than you realize.

Here are some:

1) Stop paying on the debt you are going to discharge anyway. In bankruptcy, almost all debts are dischargeable (wiped out). (There are a few, such as governmental fines, recent taxes, etc., but your bankruptcy attorney will identify them and discuss them with you.) The majority, such as credit cards, unsecured lines of credit, judgments, will be gone. Stop paying immediately and save up that money to finance your case. These are professional lenders, they understand.

And, by the way, once you hire an lawyer, you can stop the collector calls by simply telling them you have hired a bankruptcy attorney to prepare a case. Give them the name of your attorney, because they will call to confirm, and the calls will stop.

Professional lenders know they will be violating a court order by calling once you have filed, and since they don't know when you will file, as a matter of company policy, they usually stop the calls altogether. Whew.



Posted 1 week 1 day ago

Probably the most frequent question I get from prospective clients is: "Will bankruptcy hurt my credit score?"

It's a fair question, but I usually find it a little amusing. It's a bit like the man who's drowning worrying about how he's dressed.

For most people, by the time they see a bankruptcy attorney the financial problem is extreme -- the garnishment has begun, the foreclosure is imminent, the summons has arrived setting a court date, or the collector calls are now coming every hour. And, of course, at this stage, the person's credit score is in the tank. It cannot get worse.

By clearing away debt, I explain, they will improve themselves to get a loan.

A recent survey of credit-risk managers at lenders by credit-score giant FICO, reported in the Washington Post, confirms what I have been saying all along: When it comes to qualifying for a loan, it's the amount of debt you are carrying, not your credit score that matters most.



Posted 14 weeks 10 hours ago

There may be some good news for taxpayers with problems since IRS loosened up the rules for relief in 2012, according to recently-released reports by the agency.

The IRS changes for granting relief recognize the downturn in the economy.

From 2012 to 2013 the number of so-called "offers in compromise" (proposed agreements by taxpayers to IRS to discount back taxes) increased from 64,000 to 74,000. And, more importantly, the number of offers accepted jumped from 24,000 to 31,000 -- a 29% increase.

Likewise, the IRS seems to be moderating its forced collection efforts. IRS levies on bank accounts and paychecks dropped from 2,961,162 to 1,855,095 -- a 37% decrease. And the number of seizures dropped from 733,000 to 547,000, which amounts to 25% fewer seizures of property.

Says Morgan King, a California attorney and tax relief expert: "Clearly, the new policies are making it feasible for more honest but delinquent taxpayers to wipe the slate clean, become compliant with the tax laws, and get a fresh start."



Posted 19 weeks 3 days ago

It happens almost every week. Somebody comes into our office with a serious tax problem -- caused by a shoddy tax preparer, either through incompetence, negligence or sometimes downright fraud.

It boggles my mind that there is no regulation of tax preparers. I thought I was the only one who had noticed this problem. But no.

The National Consumer Law Center, a consumer watch-dog group, has recently issued a very good report on this. Following is from the press release announcing the report:

(BOSTON) One of the most surprising aspects about paying taxes in the United States isn't about marginal rates, deductions, or loopholes - it's the lack of regulation for most tax preparers.

Each year, tens of millions of consumers rely upon paid tax preparers to help them file accurate and compliant tax returns, yet the majority of these preparers are not subject to any minimum educational, training,competency, or other standards.

A new report from the National Consumer Law Center (NCLC) documents how a lack of regulation has allowed incompetence and abuses by tax preparers to flourish.

"All 50 states regulate hairdressers, but only three regulate tax preparers," stated Chi Chi Wu, staff attorney at the National Consumer Law Center (NCLC) and author of the report. "Yet an inaccurate tax return can cause a lot more harm than a bad haircut."



Posted 37 weeks 2 days ago

A layperson is often at a disadvantage when defending against a debt collection suit filed by an attorney. The debtor as a defendant does not know the "rules of the game" and sometimes takes the advice or direction of court staff (who by the way should not be giving legal advice but often do.)

Talking to clients who have appeared to defend in small claim collection suits in this area (Northern Virginia, suburban Maryland and DC), I am surprised that many will meekly follow court staff instructions to come back to court on another date -- when the collector's attorney fails to show up or is late! This failing is a perfect opportunity to have the case thrown out!

You have a right to ask the court to proceed on the case. Tell the clerk that you are present and ready for the case to be called. When the case is called, proceed to the podium and ask the court to have the case "dismissed with prejudice." That very important qualifier -- "with prejudice" -- means that you are asking the court to dismiss forever.

The plaintiff can ask the court to re-instate the case later, but, for most judges, he will have to have a very good excuse, for example unavoidable illness that came on suddenly, and he will need to ask for that reinstatement very soon after the dismissal, in most cases, within 30 days.

Remember: It's the plaintiff's case. He brought it. Not you. You're present and ready to go forward. If he's not there, the law is very willing to treat him harshly.



Posted 39 weeks 6 days ago

A blog post here last month discussed the growing wave of lawsuits by lenders for the balance of mortgage loans left over from foreclosures (and in some cases short sales), known legally as lawsuits for the recovery of "deficiencies."

As discussed, in most foreclosures the lender bids only a part of his loan to win the collateral (the house) at the auction. In most jurisdictions, including Virginia, Maryland and the District of Columbia, the balance will still be owing and the lender has a right to sue the signer of the mortgage for that balance, and many are beginning to do just that.

So you had a foreclosure on your house a few years ago. How do you know if there is still a balance owing and whether you may be facing a lawsuit? The bad news is, unless the value of the house was more than the loan, you are probably owing something, since lenders will only bid a part of the loan, especially if the house is devalued, and that is the case for houses bought during the peak of the market, around 2007, before the crash.



Posted 1 year 17 weeks ago

It's just another kick in the teeth. After losing homes in foreclosure a few years ago, borrowers may be getting another big surprise soon as mortgage lenders are now gearing up to file lawsuits against homeowners for the balance of the mortgage.

A Washington Post article this past weekend highlighted the rise in so-called mortgage "deficiency" court actions.

Many homeowners who were foreclosed upon don't know it, but most still owe money to the mortgage lender.



Posted 1 year 18 weeks ago

It happened again this week. The client comes into the consultation smiling broadly. He just needs help with a loan modification, he argues. He doesn't have any other debts. "Look," he says, pointing at his credit report, "it's been charged off!"

Sorry, that's not what it means. A "charge off" is an accounting entry by the lender declaring that the debt is uncollectible, a determination that helps the lender deduct it as a loss against his taxes.

The "charged-off" account is still a live debt of the borrower until such time as the statute of limitations runs out and that can vary from three to seven years and depends also on the type of debt. In this area -- Maryland, Virginia and the District of Columbia -- you will need to check the law in the jurisdiction in which you reside.

So, remember, you are still "on the hook." In fact, many of these debts are sold to debt investors at a large discount, such as Portfolio Recovery Services, Midland Funding, Portfolio Recovery, or LVNV Funding who make it a business to recover on this stuff via lawsuits and other means.

Also, it may be more harmful on your credit report as a "charge off" than actually eliminating all legal liability and having it read "discharged in bankruptcy."



Posted 1 year 28 weeks ago

Despite the image and stigma associated with bankruptcy, financial reorganization of failing businesses (and nonprofit organizations) through Chapter 11 bankruptcy is actually helping the economy by giving companies a chance to find new financing, reject onerous contracts, renegotiate leases, and expedite the sale of assets.



Posted 1 year 29 weeks ago

Bankruptcy is designed as a way for an insolvent debtor, one who cannot pay his or her creditors, to get a fresh start. Depending on the type of bankruptcy involved--Chapter 7, Chapter 11, or Chapter 13 for example--among the main functions of a bankruptcy court are to liquidate assets, discharge certain debts, or confirm a payment plan for non-dischargeable debts.

It can also serve as a way to dispute taxes, as illustrated in a recent Virginia bankruptcy court decision . In Harris v. Commonwealth, the debtor and his wife filed for Chapter 7 bankruptcy.

In Chapter 7, also known as a liquidation bankruptcy, a trustee takes control of the "nonexempt" assets of the debtor's and reduces them to cash from which creditors will be paid. (Note that before the case is filed you and your attorney will know if there are any nonexempt assets, and can plan accordingly.) While certain unsecured debts are discharged under Chapter 7, certain types of debt, like child support and income taxes less than three years old, are not dischargeable.



Posted 1 year 32 weeks ago